Good morning, Europe and the US paths may not be diverging as quickly a many would like, as Fridays Non-Farm payrolls headline number showed that the US is far from out of the woods. Economists were expecting 230,000 jobs created in august, but were disappointingly given a reading of 142,000 to plug into their economic models and see what that means for monetary policy. The number, an eight month low, was a bit of a blow for markets, but was cushioned by the fact that it still managed to reduce headline unemployment to 6.1% from 6.2% and wage growth still remained just about 2% - something we can apparently only dream of in the UK. The reaction in currency markets was short-lived, as investors sold the dollar very briefly before buying it back and returning to the post ECB status quo. The reaction in US equity markets held through the day, as they moved higher on the realisation that this might give Janet Yellen pause for thought over monetary tightening. Meanwhile, Friday also saw a ceasefire in Eastern Ukraine, which looked shaky over the weekend, but has officially still held. The reaction was positive to start with and the Euro saw some strength on the introduction of the ceasefire, but that could be undone if the skirmishes (reportedly from both sides) continue. Europe has hit Russia once again with sanctions, this time by increasing the number of companies on its sanctions list. Three Russian oil companies have been banned from raising funds of any term longer than 30 days - which gives them a cash-flow lifeline, but severely limits their refinancing and expansion capabilities. On top of this, Russian banks who were prevented from raising funds for longer than 90 days, back in July, will have this reduced to 30 days as well. With ordinary Russians already feeling the pinch from sanctions, perhaps these increases will start to reach Putins inner circle. Sunday night was a big one for Sterling. The Pound was hit hard on market opening after two polls were published on the Scottish independence referendum. for the first time, one poll showed the Yes campaign in the lead, whilst the second showed them just four points behind. with 10 days to go to the vote, both show a tremendous surge by the Yes campaigners, who have closed the gap from being 20 points down. George and Dave have been pretty swift to highlight that there will be real change for Scotland, even if they vote no. With changes to tax and spending policies and much more localised governance. Alex Salmond is, perhaps rightly, calling that a last ditch attempt. The irony possibly wont be lost on George Osborne that a country that wont be able to use the Pound is having a very large effect on it. From Australia, we heard from a well respected economist who has called on the Reserve Bank of Australia not to revolve monetary policy around the housing markets in Sydney and Melbourne. Ross Gamaut says that the RBA needs to use other tools to control house price rises and then cut the interest rate to help bring down the exchange rate, saying we needed a lower real exchange rate 18 months ago. Looking ahead to the calendar this week; after last weeks plethora of heavy hitting data, we start the week with a more subdued run. UK retail sales, industrial output and trade balance, followed by Mark Carney at the Treasury Select Committee will be the highlights for the first half of the week. Thursday and Friday see a little bit of attention on the US, with more jobless numbers, the Federal Budget numbers from August and, on Friday, retail sales data to round off the week. So far Asian markets have provided no real direction and futures are leaning only very slightly towards markets opening lower as Europe starts the week. Watch for more data on the Scottish referendum as the overriding factor in the fate of the Pound. Have a great week.
Posted on: Mon, 08 Sep 2014 08:07:05 +0000
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